Eleven Income Tax Saving options beyond 80C

As we reach in the last quarter of the financial year, HR departments of the companies start asking for tax saving declarations. Hence we rush to find out various avenues to save tax, the first option comes under section 80C where the limit of Rs. 1.50 lakh is available for each individual. This includes investments in life insurance premium, employee's contribution towards EPF (Employee Provident Fund), PPF (Public Provident Fund), ELSS Mutual Funds, Children's tuition fees, Pension Plans, Principal Repayment on home loans and a host of other investment options.

Generally most of us know about this and exhaust this limit Rs. 1.5 lakh. If have invested more under these options we won’t get any additional benefits. So what are the other options wherein we can invest and reduce our tax burden further, let’s find it out:

1. New Pension Scheme

New Pension Scheme provides an additional income tax deduction of Rs. 50,000 under Section 80CCD. This extra deduction of Rs. 50,000 on NPS increases the total deduction allowed under Section 80C and 80CCD to Rs. 2 lakh. Now government has allowed the withdrawal of 60% totally tax-free which makes it further attractive to reduce tax burden and save for our future.

2.  NPS investment made through Employer

We can save further under NPS if investments are made under corporate model. Under the NPS corporate model, an employee can deposit the contribution directly or route the contribution through the employer he or she is working with. Employer's contribution to NPS up to 10 per cent of basic salary (plus DA) is allowed deduction under Section 80CCD (2). There is no cap for this deduction but the total deduction claimed for contribution by the employer should not exceed 10 per cent of the salary.

3. Deduction of Housing Loan interest

If we have purchased a home by taking loan, we get exemption up to Rs. 2 lakhs under Section 24B of the Income Tax Act. If the purchased property is put on rent then, the borrower can only claim deduction of up to Rs. 2 lakh per year after adjusting for the rental income. And the amount above Rs. 2 lakh can be carried forward for eight assessment years.

4. Additional Deduction for first time home buyer

There is additional benefits to those persons who are buying a house for the first time (the person must not own any other residential property on the date of sanction of loan). An additional deduction of Rs. 50,000 is available under Section 80EE, over and above the limit of Section 24B on interest paid on home loans.

5. Deduction for Education Loan

A taxpayer can claim deduction for interest paid on education loan under Section 80E of Income tax. This deduction is available for self, spouse or children. There is no upper limit on the amount of deduction.

6. Mediclaim deduction for self, family and Parents

An individual can claim deduction of up to Rs. 25,000, if he or she is below 60 years of age, and Rs. 50,000 if above 60 years of age, towards medical insurance premium paid for self, spouse and children under Section 80D of Income Tax Act. Additional deduction of Rs. 25,000 is available if one has bought medical insurance for his parents. This deduction can go up to Rs. 50,000 if parents are above the age of 60.

7. Deductions for differently-abled

Government has provided extra deduction for differently-abled people under Section 80DD of IT Act. If an individual has dependants who are differently-abled, he or she can claim additional deductions up to Rs. 75,000 for expenses on their maintenance and medical treatment under this section. This deduction can increase to Rs. 1.25 lakh in case of severe disability.

8. Deduction under specific diseases

For certain critical diseases, an individual can claim additional deduction of up to Rs. 40,000 under Section 80DDB of IT Act, for treatment of certain diseases for self and dependants. The deduction can go up to Rs. 60,000 if the taxpayer is above 60 years and up to Rs. 80,000 if above 80 years.

9. Exemption for HRA

HRA stands for House Rent Allowance.

It is taxable under the IT Act subject to specified exemption limits. 

If you do one of the following then your HRA is fully taxable, not exempt if you:

       i.          Reside in your own house; or

      ii.          Do not pay rent for house occupied by you.

However, if you are living in a rented house and paying the rent, then HRA exemption can be availed for the period during which you occupy the rented house during the relevant tax year. 

Also, to claim the exemption, your employer is required to obtain appropriate and adequate proof of payment of rent for the entire period for which you want to claim exemption. 

An exception to the 'proof required' HRA rule is that, if you are a salaried employee drawing HRA up to Rs. 3,000 per month, you do not have to provide a rent receipt to your employer.

The maximum amount that can be claimed as an exemption under HRA is the least of

       i.      Actual HRA; or

      ii.      Rent paid in excess of 10% of basic salary + Dearness Allowance

             (DA) if in terms of service; or

     iii.     50% of basic salary + DA in case of Chennai, Delhi, Kolkata, Mumbai

             or 40% of salary + DA in case of other cities

10. Exemption for Rent payment

If you don't receive HRA from employer and make payments towards rent, you can claim deduction under section 80GG towards rent that you pay. The deduction is lowest of the following:

(a) Rs. 5,000 per month

or (b) 25% of total income

or (c) Rent paid less 10% of income

11. Donations for Charity

If you contribute to the society you will get some tax benefits also. Government allows, under Section 80G of Income tax up to either 50 per cent or 100 per cent deduction for the donations to charitable organisations subject to overall highest deduction allowed is capped at 10 per cent of the donor's total income.

What we should not do in tax planning !!

Last quarter of the financial year is known for tax planning. Salaried employees get the notices from their HR and deadlines to submit the proof of tax saving and we all rush to invest in tax saving instruments. In this urgency, sometime we just focus on tax saving without understanding the long term implications of that particular investments. Tax planning is very important as it helps to pay less income tax. Something everyone wants. But smart tax planning will help you boost your portfolio. The actual tax strategy will have a different meaning and emphasis depending upon an individual's personal circumstances.

1) Have a holistic picture not in isolation

Generally we think tax planning in isolation and not from an investment point of view. Hence the approach is often to grab up investments that will give them the tax break, irrespective of whether or not it will help them reach their financial goals or fit into an overall investment strategy.

Tax planning investments are no different from conventional investments. Hence, it is imperative to obtain an in-depth understanding of all investment avenues available which offer tax benefits and choose suitable ones that will help save tax and achieve goals.

Most investors in a crazy dash to meet their Section 80C requirement will opt for unit linked insurance plans, or ULIPs, and endowment plans and often end up with products that do not suit their need.

Life insurance should never be bought with the intention of saving tax. Tax saving is just one of the benefits that come along with it. The main benefit is the provision of finances in the case of death of the policy holder.

Approach tax saving with a holistic mindset. For instance, if your portfolio is heavily tilted towards debt, it would not be wise to opt for an investment in National Savings Certificate, or NSC. Instead, think of an equity linked savings scheme, or ELSS.

2) Tax saving is not just by fixed-return instruments.

Individuals tend to look at the Senior Citizen Savings Scheme, or SCSS (current interest rate 8.5%), 5-year deposits, National Savings Certificate (NSC) and Public Provident (PPF) (current interest rate 8%) as the tax-saving investment avenues. Looking at the current interest rate scenario where the interest rates are expected to fall further fix interest rates offering options are going to become further unattractive and investor should look at other options which can offer better yields.

Under section 80C we can also invest in an equity linked savings scheme, or ELSS. These are diversified equity mutual funds that offer a tax benefit under Section 80C. They have the lowest lock-in period of just three years. As of January, 2017, the ELSS category average delivered an annualised 3-year return of 18.5%.  Scheme wise the highest return was 27% while the lowest was 12%.

However we should keep in mind that these are equity funds which means, the return is not guaranteed. So select a good fund that has shown consistent performance and stick with it over the long haul. Don’t be in a tearing hurry to sell the investments just because it has completed the mandatory three years. Exit from the fund when the market is rallying or you actually need the money so you walk away with a profit. If this means hanging on for a few more years, do so.

3) Its not just 80 C, Don’t ignore the big picture.

Tax saving is more than just investments and goes beyond Section 80C.

If you have made a donation to a charity that offers a tax deduction under section 80G, avail of it. If you are paying premium on a medical insurance policy for yourself and dependents, be sure to claim the deduction under section 80D.

Also, if you are servicing a home loan or an education loan, you are eligible for income tax deductions. Under Section 80C, you can even show the expenses of your child’s education to avail of a deduction under section 80E and interest on home loans can get exemption under section 24E.

When deciding how much to invest to max your deduction under Section 80C, take into account children’s tuition fees, principal repayment on home loan, contribution to employees provident fund (EPF), and any life insurance premium you are paying and then decide the remaining amount to be invested and plan it accordingly.

Finally

As an investor/tax payer, by smart investment planning we can convert the tax savings compulsions to wealth creation opportunities. For that we have to just go beyond the traditional option and look at all the options with the clear objective in mind.

Correct Asset Allocation is the key to achieve financial goals

Planned and systematic investment through proper financial planning is the best way to start investing into the financial assets and get the best out of it but unfortunately most of us have been adhoc investors all our lives. Although Indians are one of the highest savers in the world historically still financial planning doesn’t come to us naturally. Therefore, we tend to invest in whatever asset that come our way and that has been the story of most of us if not all!

We all know and heard since childhood that ‘Don’t put all your eggs in one basket’ but how many of us follow the same when it comes to our own investments? If we go by the words, it is actually a very wise saying which demonstrates its relevance in our financial planning process. We all dream of being crorepatis and very rich and want our investments to yield us some magical returns which would help us fulfilling this dream of ours. But how many of us achieve this dream? Does your financial portfolio yield a good return in accordance with your requirements? If not, where are we going wrong?

Asset allocation is the magical mantra if you want to generate optimum yields from your investments. Allocating your surplus cash to the various investments instruments based on your requirements is what determines asset allocation. It is a simple word holding a simple meaning and not rocket science. Let us understand this in details.

1. What is asset allocation?

It is a strategic approach to handle our finances where we invest our money across various financial instruments based on our life goals and risk taking ability.

2. What does asset allocation depend on?

Allocating our total funds across various investment classes depend on three major factors:

·        Our risk-appetite?

·        For how long would we stay invested?

·        What are our life goals?

3. What are the benefits of right asset allocation?

If we can allocate our funds in various investment classes properly we would be able to:

·        get most optimum yields

·        Match our financial goals to the investments

4. Does your portfolio show asset allocation?

So whether we actually have a diverse portfolio or are we just think of it without have any clear idea what should be actually diversified portfolio be in our case? Let us understand this through an example -

Mr. Mehra aged 35, always proud of his investment acumen skills and says that he has a good appetite for risk and his Equity Mutual Fund holding has given him exceptional returns. However, when we actually checked the entire portfolio we found he has only 10% in equity! So even if he gets amazing returns from Equity Mutual Funds, how much difference does it really create on his overall portfolio?

On the other hand, Mr. Shah aged 50 had about 90% of his investments in various Equity Mutual Funds. So when the market corrected the valuations eroded so steeply that it was almost difficult to fathom!

So a skewed asset allocation is the first step towards financial disaster! Even 80-90% exposure in real estate *which most of us have not by choice but due to high real estate prices) can be a high risk to the portfolio in liquidity terms. Thus, the intelligent way to take your first informed step towards healthy financial future is by assessing our risk appetite and gauging the current asset allocation and then trying systematically to achieve the ideal asset allocation through informed investment decisions.

5. Steps of Financial Planning

Financial Planning has 6 basic steps:

1.  Identification and prioritization of Investment objectives as realistically as possible along with timeline.

2. Gather all relevant information about present investments, risk appetite, investment objective, etc.

3.   Analyze the information according to your risk profiling and ideal asset allocation

4.  Go through the recommendations properly based on the ideal asset allocation versus present asset allocation and maybe some tactical allocation based on current market scenario

5.   Consolidate the current investment portfolio consolidation towards ideal asset allocation as best as possible

6.     Review the portfolio regularly by tracking ongoing progress

As mentioned above, asset allocation comes into the primary stages of financial planning right after analyzing your risk appetite.

6. Understanding the ideal Asset Allocation:

Before finding out what is ideal Asset Allocation for someone, we need to find out Risk Profile. It is usually a simple set of questionnaire which determines a person’s risk taking appetite as far as the investments are concerned.

The risk profiling is scored and the total of the score is classified into different bands which determine the intrinsic risk appetite. Each question has a number and the total numbers adds upto for getting total score.

Let us take an example of a standard risk profiling questionnaire:

A. Age of the person:

1.     Above 50 years

2.     Between 40 to 50 years

3.     Between 30 to 40 years

4.     Less than 30 years

B. How long will you stay invested, i.e. investment tenure?

1.     Less than 2 years

2.     Between 2-5 years

3.     Between 5-10 years

4.     More than 10 years

C. No of Dependents:

1.     More than 3

2.     Between 2 to 3

3.     Only 1 other than myself

4.     Only myself

D. Past Investment knowledge

1.           No Exposure/ idea about financial products

2.          Basic knowledge of Investments

3.           I have an amateur interest of investing.

4.           I am an experienced investor

E. What is the primary objective for investment?

1.     Preserve the Investment

2.     Generate Income

3.     Grow the value moderately

4.     Grow Money Substantially

F. Which Portfolio would you prefer?

1.     I cannot consider any loss

2.     Maximum 12% and Minimum -2% return

3.     Maximum 18% and Minimum -8% return

4.     Maximum 24% and Minimum -10% return

G: Volatile investments usually provide higher returns and tax efficiency. What is your desired balance?

1.  Preferably guaranteed returns, before tax efficiency
2. Stable, reliable returns, minimal tax efficiency
3. Moderate variability in returns, reasonable tax efficiency
4. Unstable, but potentially higher returns, maximizing tax efficiency

7. How to calculate the score:

Score is same as the no. of the option. i.e. if for qns A we have selected option- 3 that the age is Between 30 to 40 years, then we got 3 points. Similarly we can calculate the points for each question.

8. And the scoring is like:

·        If score is below 15 points means the person is a Conservative Investor and his Ideal Asset Allocation should be 50% in Debt Market, 20% in Equity oriented investments and the remaining 20% in Alternate Investments like Real Estate, Gold, and 10% in cash and liquid funds etc.

·        Your score between 15 to 20 means you are a Balanced Investor and your Ideal Asset Allocation should be 35% in Debt Market, 30% in Equity oriented investments and the remaining 25% in Alternate Investments like Real Estate, Gold, and 10% in cash and liquid funds etc.

·        And if your score is above 18, it means you are an Aggressive Investor and your Ideal Asset Allocation should be 20% in Debt Market, 50% in Equity oriented investments and the remaining 20% in Alternate Investments like Real Estate, Gold, 10% in cash and liquid funds etc.

9. How should you go about asset allocation?

As a smart investor we have to determine our risk appetite, financial goals and time horizon. Say for example we have an aggressive risk profile, then we may invest about 60% to 70% of your entire portfolio into equity oriented investments like Mutual Funds provided we have time by our side and spread the rest in debt instruments and cash holdings for liquidity and contingency purposes.

A moderate risk taker with a balanced risk appetite should invest about 20% - 30% of his money in equity oriented investments like Mutual Funds. 10-15% in balanced funds and the rest in debt and real estate with about 5-10% in cash. On the other side, a conservative investor can have a minimal 15% - 20% in equity or balanced mutual funds, 50% - 60% in debt and liquid funds with around 20-30% in alternate investments. Choosing the right portfolio is the first and the most important step towards an informed financial planning which would best suit a person’s requirements along with his financial goals and risk appetite.

10. Difference between Ideal Asset Allocation and present Asset Allocation

When we look at our Ideal Asset Allocation, most of us consider the Asset Allocation ONLY in the present visible investment structure and rarely consider the entire networth. That is where the role of a Financial Advisor is very crucial. Ideal Asset Allocation considers the entire Debt, Equity, real estate and alternate investment Portfolio which may include:

Debt:

·        PPF, EPF, NPS, Gratuity Fund etc

·        Fixed Deposits, Recurring Deposits, etc.

·        Current Paid Up Value of Life Insurance Policies

·        Bonds, National Savings Certificates, KVP, etc.

·        Debt Mutual Funds, Liquid funds etc.

Equity:

·        Unit Linked Insurance Plans

·        Own Company ESOPs

·        Equities or Equity Oriented Mutual Funds

·        Listed and Unlisted Stocks within India and outside

Alternate:

·        Real estate Property, excluding current residence, within India and outside

·        Cash in Savings/ Current Account

·        Investment in liquid Funds for emergency purposes

·        Gold, Gold coins, Ornaments, etc.

·        Watches, Art, other Collectables, etc.

For calculating Networth and the Present Asset Allocation; all the above mentioned aspects are considered. The difference between the current asset allocation and ideal asset allocation is what needs to be bridged for the long term healthy maintenance of the portfolio in order to achieve your financial goals.

11. Finally:

A disproportionate portfolio leaning heavily into equity oriented investments result in high volatility while a higher weightage towards debt oriented investments restricts yield potential. Leaning into alternate investments of real estate or gold limits liquidity and blocks the money for a longer tenure. Having a balanced portfolio based on an individual’s needs is the best course of action as it would ensure ideal returns and aid in wealth maximization while not being very volatile. Since childhood we heard the saying of putting all the eggs in one basket and now it is time we must exercise it in our financial planning process. Planning a portfolio through right asset allocation is a key to financial success. It is always advisable to avail the services of a financial planner throughout the journey of wealth creation.

Are You SAVING or INVESTING?

Most of the time we misconstrue savings with investments. But let us tell you that there is indeed a difference between the two.

Investment means let your money start working for you. Whereas putting aside money under the mattress, or in a vault, bank locker or savings bank account after meeting your expenses and liabilities can be called as savings, which does not mean that money works for you.

In times where the inflation bug is eating into our earnings, we need to move a step forward and invest. More importantly, invest wisely!

Let's delve a little deeper and understand the difference between the two...which can help us march forward in our journey of wealth creation.

What is Savings ?

Savings refers to preservation of wealth for future use. It is an act of putting aside money after defraying expenses and liabilities (...therefore the unspent income results in savings). To put it simply:

Savings = Income - All expenses including obligations towards borrowed money

How to Increase Savings

1. Make a a budget ...Ascertain your income and necessary expenses. frame the budget in a way that allows to save more. 
2. Control the expenses ...try to avoid those expenses which aren't necessary.
3. Refrain from impulsive buying ... Before going for shopping make a list so that we can be within our control and do not indulge into unnecessary purchases. 
4. Start saving at an early age ..the sooner the better. The early we start planning the better and easy it would be. Remember, we can always postpone our decision to buy a favourite gadget, but should save for a rainy day.)
5. Don’t over-borrow / credit ..Now a days banks/finance company’s gives consumer durable loan just by pan card/ address proof and cancelled cheque even car loan and personal loans are also very easily available. However it does notmean that we should take watever is available. Similarly we may own and use a credit card, use it thoughtfully knowing our means - Remember: excessive credit can lead to a debt trap!
6. It may be small start but save regularly ....Remember, single drops poured regularly can fill the buckets if …so we must remember that every bit of savings can help you attain financial freedom.

Finally: 

As explained above how should we shave but then the next questions comes it just saving the money is enough? By just saving can we achieve our life's goals? - Which could be: buying our dream home, dream car, sending kids abroad for higher education or their marriage, money for retirement or amongst a host of other ones. 

Lets think about it. 

We know, over the years, the value of money diminishes due to inflation. So the money we have saved - kept aside in your vault, bank locker, savings account, or under the mattress - may lose value as the inflation bug eats into your savings if it is not allowed to grow at a decent pace? Therefore, in order for it to grow, we need to put our 'money saved' to money invested as in productive use - and make money work for us! 

And what should we do to make money work for you? 

Well, the answer lies in INVESTING!

What is Investing?

Investing is an act of laying out our 'money saved' for productive use with an expectation of earning return more than inflation to preserve purchasing power of money We can call it is a process of making our 'money saved' to work for us (instead of simply stacking in our vault / bank locker or under the mattress)

How does investing benefits us ?

1. It will grow our savings
2. As it is put on productive use so it helps our money work for us
3. It helps in countering inflation and maintaining purchasing power of money …As said earlier the money tends to lose its value over time due to inflation - which eats into our hard earned savings - we can counter the inflation bug by investing and maintain the purchasing power of money for our future..
4. We can achieve our financial goals in life ...like buying a dream home, a car, taking care of children's education needs, their marriage and own retirement amongst a host of others..
5. Helps wealth creation…this way we can create wealth and leve it for our next generation to remember us…
6. Provides a sense of financial security…as we all call “baap bada na bhaiya sabse bada rupiyaa”….if we have money we can feel secure and enjoy the life..

What is the Right Approach to Investing?

1. Objectives should be clear ... First of all we should be clear that why we are investing with what objective in mind.. whether it is long term or short term..             as different investment avenues are meant to cater to respective investment objectives. So enough care should be taken while investing money. Ideally each of our investments should match our investment objectives.. 
2. Understanding our own risk tolerance ...if volatility makes us nervous then risky investments such as stocks and equity mutual funds may not be the ones for us and we have to find other stable and safer options in fixed income instruments instead, such as fixed deposits, PPF, etc…
3. Know the risk involved while investing ...as we all know that, every asset class – i.e. equity, gold, bonds and real estate - has risk associated with it and therefore it is necessary to know about the same before investing we put our hard earned money in them.. 
4. Consider our age and earning horizon ...this will help to have the right investment instruments appropriate for your age)
5. Clarity about the time period for the investments ...As we all know the longer the investment it will give more of the returns…and also can take higher the risk..by investing in risky classes but before that we should be clear that when we need this moany so that it can be invested accordingly..
6. Do sufficient research ...It is important that we should not get carried away by exuberance and / or what other like friends and family say. Instead, we should undertake solid fundamental research on respective investments, and please do not get caught up in hype....understand how the product works)
7. Assess cost of investing (...Everything has its own cost…so we should be aware what he hapveto pay for that particular investments.. it is vital to keep an eye on terms and conditions associated with the investment avenue. Very often many indulge in trading in the stock market to make a quick buck without really understanding the associated costs they are paying for regular trading or churning..
8. We should focus to invest which earn more than inflation (...Investments should be able to beat inflation if we really want them to grow and match the future requirements.. it will also help to achieve your financial goals smartly and efficiently)
9. Know the tax implication ...tax is a very important part of investments as it can eat a ajor part of earning so we should know which are tax efficient options and how best we can use it in our favour. Or else we may end up paying higher tax on returns..
10. Sooner the better...we should start investing by the time we start earning…as there are benefits of doing so. we can understand it well by taking a look at the following table and chart)
    
    

The Sooner the better..

Let us take an example of 3 friends – Ram, Shyam and Balram - All 3 had good jobs and wanted to retire at the age of 60. Ram being the smarter of the lot, started planning for his retirement at the very initial stage, at 25, and invested Rs. 10,000 per month. Shyam realised the importance of planning for retirement once he was 30, while Balram could feel the guilt of being left out only when he was 35. See what they accumulated when they were on the verge of their retirement. 

Particulars	Ram	Shyam	Balram
Present age (years)	25	30	35
Retirement age (years)	60	60	60
Investment tenure (years)	35	30	25
Monthly investment (Rs.)	10,000	10,000	10,000
Total Investment Amount (Rs)	42 Lakhs	36 Lakhs	30 Lakhs
Returns per annum	12%	12%	12%
Sum accumulated (Rs)	6.43 Cr	3.49 Cr	1.88 Cr

(Return per annum mentioned above is for illustration purpose only)

Not only this, they also noticed a wide deviation in the proportion of growth they saw on their invested corpus. While Ram's money grew around 15.3 times, Shyam's money grew 9.69 times and Balram saw a growth of just 6.26 times

Its important to remember while investing..

Finally, we should always keep in mind following points while investing..

To Save

1. SAVE before you spend.. ...: It is always important to control our expenses and save for a rainy day.. 
2. It is never too early to save ...we should start saving from the day we start earing..its never too early..in fact, savings can help you feel financially secure and you can slee in night without worry for the next day..
3. Small amount also matter but do it regularly…AS said above small drops can also fill the bucket if they are pouring regularly…so don’t postpone investments as you feel its too small to save.. 

While Investing

1. Don’t be in hurry while investing (...undertake thoughtful research by doing a detailed study)
2. Its not a joke ..Investing is a serious activity (...for non-finance background people it can be a boring activity but its serious activity and should be given proper weightage…
3. Don’t speculate ..Although trading  can be a thrilling experience, but it can be killing as well if the tide turns against our expectations. So it is best not to fall for excitement and exuberance)
4. Invest emergency funds in safer avenues (...Emergency funds should be kept in saving accounts or liquid funds not for long term investments like equity or equity mutual funds.. remember, they are put aside as part of your savings to meet your requirements on a rainy day
5. Invest own money not from borrowed funds ...Investment should be made out of own funds except in the case of investing in real estate or your own business; but again, while investing therein don't go beyond your means..
6. Know where we are putting money...understand the basics where we invest how it works and undertake research; recognise the risk-reward relationship the product offers..
7. Diversify ...Never keep all the eggs in one basket ..diversification can help to reduce our risk to your overall portfolio if we diversify wisely..

Some Important Ratios to Track Your Personal Finance

Total investment to Income Ratio =	Current Value of Total Investments
	Total Annual Income

This ratio helps you understand the current value of investments done as a ratio of current income. 

At a younger age this ratio tends to be lower. However with time one needs to accumulate enough savings and invest to fulfil various financial goals in life. 

Savings to Income Ratio =	Total Annual Savings
	Total Annual Income

This ratio simply tells you what part of your income you are saving annually. Higher the ratio, the better it is, as it facilitates you to invest and lets your money work for you. 

Debt to Income Ratio =	Total Debt
	Total Annual Income

This ratio would help you evaluate the proportion of total debt as against the total annual income you earn. 

Lower the ratio, the better it is. 

Following these ratios, can help us to keep a track of your finances.